Question Details

These politicians talk as though they expect a Third World nation to be able to attract large inflows 



1. "Everyone loves the U.S. dollar these days and the fall in the current account deficit just added to its popularity." A fall in the current account deficit makes the dollar more popular because 
a) it signals that the interest rate is about to fall, attracting capital inflows 
b) other things equal, smaller current account deficits mean lower imports 
c) other things equal, it means a balance of payments surplus which bids up the value of the dollar 
d) the smaller current account deficit means the value of the dollar will continue to fall, albeit more slowly, increasing exports 
2. "The report concludes that the recent strength in U.S. investment has been financed by domestic investors redirecting funds from foreign capital markets to U.S. capital markets. Thus, increased demand for U.S. dollars isn't the reason for the strength of the U.S. dollar, but rather a decreased U.S. demand for foreign currencies." U.S. investors redirected their funds because of 
a) an appeal to patriotism b) a current account surplus 
c) a rise in the U.S. interest rate d) a balance of payments surplus 
3. "If domestic savings increases and domestic investment decreases, it is possible that a budget deficit may not lead to a deficit on current account." This could happen because under these circumstances 
a) tax receipts would increase b) the budget deficit would disappear 
c) the interest rate would fall, creating a balance of payments deficit 
d) the interest rate would rise, causing a balance of payments surplus 
4. "These politicians talk as though they expect a Third World nation to be able to attract large inflows of capital and at the same time have large current account surpluses." If this country is to have equilibrium in its international sector this is 
a) possible if imports are low enough b) possible if exports are high enough 
c) possible if interest rates are high enough 
d) impossible because a surplus on the capital account implies a deficit on the current account 107 
5. "The two-year-old recession appears to have deepened in the past two months, paving the way for _____ in interest rates and a steady ______ of the dollar in coming months, economists say." The blanks are best filled in with 
a) increases; appreciation b) increases; depreciation 
c) decreases; appreciation d) decreases; depreciation



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